Jessica C. Lai and Vikas Kathuria on ‘Restrictive Conditions” in patent law and the competition law interface’ (2018) Journal of World Intellectual Property law 21 256

This paper – which can be found here – examines the IP-competition interface in New Zealand, and compares it with Australia, India and the UK.

A first section provides an overview of the interaction of IP and competition law in New Zealand.

Section 66(1) of the Patents Act 1953 makes void any contractual condition that could be said to amount to patent-tying or to a patentee attempting to control a purchaser, lessee, or licensee’s ability to trade with third parties (the ‘restrictive conditions’). This provision is substantively similar to historical provisions in the UK which sought to ‘prevent a patentee from abusing his monopoly by placing restrictions on the acquisition and use of products other than the patented products.’ Any prohibited contractual condition also acted as a defence to patent infringement.

In its 1949 Patents Act, the UK introduced a provision that allowed a vendee, leasee or licensee to terminate a contract related to a patent or patented invention that was no longer in force, upon giving three months’ notice (s 58; see also Patents Act 1977, s 45). This was carried over into the New Zealand Patents Act 1953 (s 67) and Patents Act 2013. Both instruments also included compulsory licensing mechanisms, which are considered a potential means to deal with a patentee’s anticompetitive conduct. Similar provisions can be found under Indian law.

Both New Zealand provisions mentioned above include a number of defences to patentees. First, the contract will not be void if the vendor, lessor, or licensor could show that it was willing to sell or lease the article, or grant a licence to use or work the article or process, to the purchaser, lessee, or licensee, on reasonable terms and without any prohibited condition, which the latter was entitled to relieve him/herself from liability under the contract upon giving 3 months’ notice in writing. Second, exclusive dealing agreements are allowed, so long as they pertained to sales (exclusive distribution) and not use or purchase.

A second section looks at recent developments, and compares them to the situation in other countries.

In the UK, the entry into force of the UK Competition Act 1998 – which does not make any reference to intellectual property – repealed the relevant sections on the Patents Act, with the result that provisions of the Competition Act are therefore effective instead of the Patent Act to prevent anticompetitive practices. Put another way, the UK sought to avoid an overlap in jurisdiction of the two legal regimes.

The New Zealand Patents Act 2013 also does not have a provision on restrictive conditions. But, in contrast to the UK Competition Act 1998, the New Zealand Commerce Act 1986 has two sections that specifically stipulate that certain behaviour vis-à-vis intellectual property is exempt from the competition law regime. A first provision seems to exempt from competition law the grant of a licence to use and exploit a statutory intellectual property right. This exemption only applies to clauses that deal specifically with the licensing of intellectual property rights, and not to any other clauses in the licensing agreement. A second provision holds that “a person does not take advantage of a substantial degree of power in a market by reason only that the person seeks to enforce a statutory intellectual property right”.

These provisions are uncommon. While most jurisdictions’ competition law regimes have dealt with patents, they have mostly done so through policies, guidelines and case law – the exception being Australia and India, which also have provisions exempting certain behaviour regarding intellectual property from competition law. However, the scope of these exemptions is different. Australia exempts from its competition law licence conditions pertaining to “the invention to which the patent or application for a patent relates or articles made by the use of that invention.’ India has a section in its Competition Act 2002 exempting certain behaviour with respect to intellectual property which covers “the right of any person to restrain any infringement of, or to impose reasonable conditions, as may be necessary for protecting any of his rights which have been or may be conferred upon him under” certain statutory intellectual property regimes, including patent law.

A third sectionconcludes.

It would seem that the relationship between competition law and patent law (indeed, intellectual property generally) is not one that New Zealand policymakers and legislators have given much thought to. There are numerous indications of this, such as the existence of two vaguely drafted intellectual-property exemptions in its competition law legislation.

The authors argue that this is a mistake. The emergence of multinational giants that gain much of their power from intellectual property and information asymmetries, together with the global trend to use competition law to curb the expanding scope of intellectual property, indicate that the relationship between competition and IP law is of key importance for regulating both consumer protection and innovation.

If use or reliance is anything to go by, patent law’s mechanisms for regulating competition concerns have proven to be undesirable and ineffective, with, respectively, no or few parties having relied on patent law’s prohibition of restrictive conditions or its provisions for compulsory licensing. For example, though all the jurisdictions discussed in this article have compulsory licensing provisions in their respective patent statutes, only India appears to use this provision to ensure access to patented inventions.

Competition law (and the Commerce Commission, New Zealand’s competition enforcement and regulatory agency) might appear to be a more suitable and effective avenue for directly and transparently regulating the anti-competitive conduct of patent owners. Additionally, competition law is more fact-dependent, using economic analysis to address licence agreements as a whole, in light of market reality, overall market competition and consumer welfare. Competition law is, thereby, a more flexible tool by comparison to provisions on restrictive conditions in paten t legislation.

Comment

This is a thoughtful, if somewhat dense, analysis of how different common law jurisdictions address the interface between IP and competition law. It is not for everyone, but it is insightful, useful for anyone working or interested in the jurisdictions under review, and provides yet another example of the tensions and difficulties that arise at the interface of these two legal disciplines.